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Two structures of collateralized mortgage obligations (CMO) are being considered. In the first structure, $300 million of pass-throughs will be used as collateral for two sequential-pay tranches: $225 million of bonds of tranche U and $75 million of bonds of tranche V. The principal for tranche U must be completely paid off before any payments are made to tranche V. In the second structure, the $300 million of pass-throughs will be used as collateral for $225 million of X bonds in a planned amortization tranche and $75 million of Y bonds in a support tranche. Which of the following is least accurate? The: A. X bonds have less contraction risk than the Y bonds. B. U bonds have less extension risk than the V bonds. C. U bonds have less contraction risk than the V bonds. |